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Outlook uncertain despite confidence

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Johannesburg - Business confidence remains stable, but the economic outlook was uncertain, reported Rand Merchant Bank (RMB) and the Bureau for Economic Research (BER) on Tuesday.

The RMB/BER Business Confidence Index (BCI) declined by one point to 46 in the fourth quarter.

"This means that slightly more than half of the respondents remain downbeat about prevailing business conditions," the organisations said in a statement.

"The good news is that sentiment improved in four of the five sectors making up the composite index."

New motor vehicle trade was the exception, with confidence falling by 24 index points.

This was partly the result of seasonal factors, and fully offset the increases, of varying degrees, in the other sectors.

The business mood among manufacturers improved slightly further, with the index climbing by five points to 38.

"Given its close association with mining, the impact of wildcat strikes could easily have resulted in a sharp drop in manufacturing confidence," they said.

"The fact that it did not, points to an important countervailing factor: domestic sales volumes turned out stronger during the fourth quarter than most respondents had initially anticipated, which also more than made up for weaker exports."

As a result, production levels picked up, which had somewhat lifted spirits.

Retail and wholesale confidence continued to rise. Retail confidence jumped eight points to 54. Wholesale sentiment improved by four points to 57.

Both sectors reflected the continued comparative strength of consumer spending, according to RMB and BER.

"Sales of non-durable goods in particular, which had been lagging [behind] that of durables and semi-durables, posted robust growth in the fourth quarter."

The building contractors sector posted the smallest increase in confidence.

This index rose by only two points to a still depressed level of 28.

"The recovery in building activity remains slow and mediocre at best," said RMB and BER.

Overall business confidence remained stable during the fourth quarter.

However, some results were worrying.

The profitability of some sectors improved in the quarter relative to initial expectations.

But general business conditions across all sectors worsened further compared to a year before.

The deterioration was especially pronounced in the case of motor trade, wholesale trade and manufacturing, according to the statement.

While fixed investment in the manufacturing sector held its own in the fourth quarter, few respondents expected this to last.

"The majority of manufacturers anticipate investment to contract notably in the first quarter of next year, and to stay weak on a 12-month horizon," the statement said.

Plans to cut capex could be attributed to greater uncertainty, particularly the domestic political climate in particular.

The percentage of manufacturers rating the political climate as a constraint on their business jumped from 58% to 73%.

This was the highest percentage since the very uncertain period before South Africa's first democratic elections.

It was encouraging that the BCI had fallen by only one index point, and actually rose in four out of five sectors, in light of labour unrest.

Consumer spending in particular continued to prop up the economy.

"This is not to say businesses are ignoring what seems to be a general deterioration in labour relations and worsening in the domestic political climate," RMB and BER said.

There were already signs that labour unrest had begun to negatively affect business' investment intentions.

"If what are still just plans to cut capex become reality, the longer-term economic growth and employment creation potential of the economy will no doubt be endangered," said Ettienne le Roux, chief economist of RMB.

Investec group economist Annabel Bishop sounded the alarm over the survey findings.

The index had fallen below its long-term average since 1980, of 46.7.

It had now fallen to 46, from 47 in the third quarter.

"Companies need to be able to price risk in order to operate successfully," she said.

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